How do you translate people to square feet?

Companies think of space in terms of people, but real estate leases think of space in terms of square feet. In a typical office property, each person translates to roughly 250 square feet. If you have 30 employees, you will need roughly 7,500 square feet of office space. I have seen start ups using an extremeley dense open environment get as low at 140 square feet per person, which would mean 30 people could fit like sardines into 4,200 square feet. The number can be adjusted up or down depending on how open the enviornment is, but as a general rule of thumb 250 square feet per person is good place to start.

A Tale of 3 Spaces

Why would a trophy asset downtown be priced lower than a brick building in SOMA? While the last downturn centered in SOMA, this financial crisis has most strongly impacted the financial district. Rents are dropping north to south in the city and a majority of the sublease space, which drives down rents, is in the financial district. Tech companies were hit later in this cycle and are starting to list subleases in SOMA (Yahoo, LiveJournal, Slide etc), which will continue to pull SOMA overall rents downward going forward. Through three spaces, let’s examine your pricing options today.

– Financial District Option: 101 California 19^th floor sublease through 10/31/12, trophy asset in the heart of downtown at California and Front, access to all forms of transportation and abundant amenities, high end build out with wood floors mostly open with conference rooms/private offices, all furniture included, asking $28 FS/square foot/yr. 101-california-sublease-flyer-19th-floor2

– South Financial District Option: 217 2nd Street 3^rd or 4^th floor, brick building near 2nd and Howard next to the CNET/now CBS building, First Round Capital a floor above, all open needs improvements, no furniture, asking low $30sFS/square foot/yr 217second-street1

– SOMA Option: 139 Townsend 5^th floor, brick building at Townsend and 2nd across from Tres Agaves in the heart of SOMA/SF tech community, mostly open with conference room/private offices, asking mid $30sFSE/square foot/yr 139-townsend-sublease-flyer

Based on the above comparison, if you decided to lease 101 Cal over 139 Townsend, you would save an estimated $57,000 per year in rent. The above amount does not even include the out of pocket expenses associated with buying furniture and cabling the SOMA alternative.  The above comparison can be found in smaller and larger spaces as well and demonstrates the point that teams should be evaluating if their location preference is a nice to have or need to have.

If your company has always been located in one area and you are contemplating a move. I would suggest doing an employee map. This will plot all of your management and employees by division on a map, so that you can understand where your employees come from and what type of transportation options they are using. We can provide this service to you. In these tough times, saving money is a strong priority for most companies, and being open to evaluating other submarkets can help you accomplish that goal.

Deciphering NNN, IG and FS

Below is a quick summary of the three main types of commercial leases: NNN, Industrial Gross (sometimes known as modified gross), and Full Service. Different submarkets and even different buildings in the same area use the three type of leases. The tenant is paying for the same thing at the end of the day, just paying in a different way. Here’s an explanation of each and how we can convert them to apples to apples to evaluate real estate alternatives.

 

 

• NNN (net lease): lease requiring tenant to pay in addition to the base rent, expenses of the property including taxes, insurance, maintenance, janitorial, etc separately.
• Industrial/Modified Gross: lease requiring tenant to pay part of the expenses of the property separately in addition to the base rent. Typically this includes electrical and janitorial expenses.
• Full Service: lease that includes all charges (base rent, electrical, janitorial, taxes). *However full service leases still have a base year, by which the tenant pays for building operating expenses and taxes above and beyond their lease’s base year.

 

 

The way to make everything apples to apples is by making every lease “full service equivalent”. This definition is when you add the additional separate expenses to the NNN and IG/MG leases to gross it up to the Full Service Equivalent. When you are evaluating options with different types of leases, you should ask what the estimated additional expenses are and add it back in to get the full service equivalent rent. A professional that has in depth market knowledge assessing options will be able to easily covert these numbers and give you back a digestible analysis. While buildings typically will not change how they write their leases, this will prepare your team and ensure there are not additional surprise payments.

Two S.F. office deals can’t wake market from slumber

There have only been 2 deals above 10,000 sf in the San Francisco financial district since the beginning of this year. Rates are estimated to have dropped 20% since Q408 numbers were published. In this market environment, no one really knows where the market is, since there are hardly any deals and comparable transactions. For most spaces in this market, it is essential that you push below the asking rates and that you ask for additional lease incentives like renewals, expansions etc to test the elasticity of the market. Landlords don’t know where the market is and are motivated to lease the space. See the below article on leasing activity.

Office leasing was downright comatose during the first half of the first quarter.

If you don’t count renewals, the central business district logged a total of two deals more than 10,000 square feet, according to CB Richard Ellis’ mid-quarter report. The larger of those two deals was Marriott’s 19,027-square-foot lease at 45 Fremont. The second biggest was a sublease by Bank of the West for 13,483 square feet at 88 Kearny St. After those two deals, the biggest non-renewal lease completed in the first six weeks of the year was Union Square Advisors’ 7,669-square-foot sublease agreement at 2 Embarcadero Center.

The total available space (direct and sublease) has jumped to 18 percent across the city. The financial district has vacancies of 16.7 percent and the south financial district is at 14.8 percent.

The CBRE report says “it appears as if the current recession will have a more significant effect on San Francisco than initially expected.”

SAN MATEO

Gaming software firm doubles its footprint

NR2B Research, a developer of multi-player online gaming software, has grabbed just under 50,000 square feet at 475 Concar St. in San Mateo.

The company more than doubled its footprint from its space at 2121 S. El Camino Real.

Clarke Funkhouser and Mike Moran with NAI BT Commercial Burlingame represented landlord ARJAX Railroad Associates in the three-year lease. NR2B leased the entire second-floor office portion of the two-story mixed-use building, which has retail on the ground floor. 475 Concar contains high-tech interiors and is adjacent to the Hayward Park Caltrain Station.

“Every deal is a significant deal today,” said Funkhouser.

Graham Woodhall of Cornish & Carey represented the tenant.

FREMONT

Video equipment maker buys space for $2.5M

Some businesses are finding that purchasing their space makes more sense than leasing. Jaton Corp., a maker of video equipment, paid $2.5 million for five adjacent units totaling 14,510 square feet of industrial and office flex space in the Fremont Tech Center.

The 136,730-square-foot building, developed by Phoenix-based Opus West Corp. in the 4.4 million-square-foot Bayside Business Park, was completed last month.

Jaton plans to move its headquarters and manufacturing from its current facility in Milpitas next month. Other buyers include Telirite Technical Services Inc., a company that manufactures electronics on a contract basis. who took 12,580 square feet. Sunware Corp., a provider of information technology services, purchased 7,475 square feet.

“This latest deal underscores the continued need for small, yet high-quality research and development buildings in the Bay Area,” said Don Little, senior vice president of Opus West in Northern California.

Julie Ho, a broker with Wealth Realty Advisors who represented Jaton in the deal, said the company secured financing from its lender, China Trust, by putting down 30 percent and because the loan was for owner-occupied space.

Opus’ development is comprised of 26 units in 10 separate buildings. Each unit is flexible in size, ranging from approximately 2,500 to 12,500 square feet and designed to accommodate office, R&D and light industrial manufacturing. Brokers Tom Taylor, Scott Prosser and Benjamin Rojas of CB Richard Ellis represented Opus West Corp. Ho, president of Cupertino-based Wealth Realty Advisors, represented Jaton Corp.

NEED HQ SPACE?

Mervyn’s distribution center goes on market

A 366,000-square-foot, former Mervyn’s distribution center at 48200 Fremont Blvd. in Fremont is on the market. Colliers International listed the property, which it says is ideal for a corporate or regional headquarters. The site, built in 1990, sits on 32 acres and includes about 26,000 square feet of office space and close to 5 acres of vacant land.

Mervyn’s, a longtime Bay Area-based department store chain, went out of business in October when it was already in bankruptcy. The closure left a slew of properties including 175 stores nationwide, 10 of them in the Bay Area, and its Hayward headquarters building up for sale or lease. The retailer decided to outsource the distribution operations of the Fremont facility in April of last year as a cost-saving measure.

Brokers Greig Lagomarsino and Todd Severson of Colliers Oakland office are handling the listing.

Email J.K. Dineen at jkdineen@bizjournals.com / (415) 288-4971
Email Blanca Torres at btorres@bizjournals.com / (415) 288-4960